TL;DR
- Polymarket is pressing regulators in the UK and the EU to have its contracts classified as financial products rather than gambling.
- The platform is seeking a framework based on MiFID, the European financial instruments directive, and has already met with ESMA, the FCA, and the European Commission.
- The company, valued at over $20 billion, faces issues with gambling regulators in France, Germany, Italy, and the United Kingdom.
The battle of Polymarket in Europe spans several fronts: the world’s largest prediction market is attempting to convince regulators in the United Kingdom and the European Union that its contracts are financial instruments, not bets, and that they should be treated accordingly. This was revealed by the Financial Times, which reported that the New York-based company is in active discussions with authorities in London, Brussels, and several EU member states.
The company’s central argument is that its contracts — tied to elections, sporting competitions, central bank decisions, and weather events, among others — are comparable to financial derivatives under the EU’s MiFID directive. If that classification succeeds, Polymarket could offer its platform to retail investors across Europe without needing to obtain gambling licenses in each country, a costly and inefficient process that currently represents the main obstacle to its expansion.
Polymarket Negotiates and Seeks Partners
In June, the company doubled down on its push. Its legal representatives met with Verena Ross, chair of the European Securities and Markets Authority (ESMA), and the following day company executives sat down with Nikhil Rathi, chief executive of the UK’s Financial Conduct Authority (FCA). Polymarket also joined Blockchain for Europe and is in talks with other industry groups on the continent to build support for its preferred regulatory position.
However, the resistance is considerable. ESMA showed little enthusiasm for loosening the existing framework and recently warned that prediction markets are vulnerable to insider trading. In the UK, the FCA has historically defended restrictions on binary options for retail clients, precisely due to their speculative nature. Additionally, gambling regulators in France, Germany, and Italy have already indicated that this type of platform should obtain local betting licenses.
Capital Raising Moves Forward
Polymarket continues raising capital at a valuation exceeding $20 billion and needs regulatory clarity to scale across Europe. The closest precedent is the United States, where the Commodity Futures Trading Commission (CFTC) recognizes prediction markets as financial derivatives, though that interpretation has also sparked several disputes with states that prefer to apply gambling laws.
The definition adopted by European regulators will determine whether the platform can operate freely or will be confined to a maze of national licenses.
